Ethereum co-founder, Vitalik Buterin, has been at the forefront of a recent collaborative effort to devise a privacy protocol named ‘Privacy Pools’. The initiative aims to cater to some worries linked to existing privacy platforms like Tornado Cash, all while advocating a harmonious coexistence of financial privacy and regulation.
A number of crypto veterans, including Ameen Soleimani, Jacob Illum, Matthias Nadler, and Fabian Schar, contributed their insights to the development of this “smart contract-based privacy-enhancing protocol”. The core feature of Privacy Pools is to use zero-knowledge proofs to verify the legitimacy of user funds without exposing the entirety of their transaction history. The purpose is to install a “separating equilibrium” that will sift out funds related to criminal activities, skilfully negotiating between privacy and regulatory demands.
The proposed approach empowers users to disclose zero-knowledge proofs asserting their funds’ origin without divulging their complete transaction graph. This presents a potential answer to ascertain the legality of funds while maintaining transactional privacy. Nonetheless, Privacy Pools are not without their criticisms. For instance, platforms like Tornado Cash, cited for their utility as privacy tools, are also subject to misuse by illicit actors, as was seen when Tornado Cash got embroiled in legal challenges over accusations of facilitating transactions for the North Korea-related hacking group, Lazarus.
Reacting to the misuse, the US Treasury Department’s Office of Foreign Assets Control blacklisted Tornado Cash in August 2022, citing its alleged involvement in illicit activities. Privacy Pools, the brainchild of Buterin and his team, is the proposed solution to such dilemmas. It hopes to afford higher privacy, filter out illegal transactions and maintain alignment with regulatory standards.
However, the authors acknowledge that privacy and regulatory compliance often seem at odds. The paper counters this perception, stating that it only holds if the privacy-enhancing protocol does not let its users prove certain properties about their funds’ origin.
Meanwhile, Buterin also expressed his concerns over centralization of nodes – a significant hurdle facing the Ethereum network. His worry rests on the reality that majority of the 5,901 active Ethereum full nodes are operated on centralized platforms like Amazon Web Services.
Buterin dreams of a possible world where fully verified Ethereum nodes could “literally” run on a phone, and claims that solving the issue of full node centralization is a substantial piece of the puzzle to make Ethereum more decentralized. It’s a balancing act, addressing the centralization concern without sacrificing the privacy needs and regulatory obligations. Thus, the future of crypto technology rests on finding this elusive equilibrium.
Source: Cryptonews
